Neither Shrinking Nor Rethinking

At a press conference Tuesday, Defense Secretary Robert Gates and Undersecretary Ashton Carter unveiled some long-awaited details about their politically bold effort to rein in defense costs. But these measures, though worth undertaking, aren't really "cuts" as they are often described. Instead, what’s been announced is an ambitious campaign to improve the efficiency of the Pentagon’s contracting practice in order to free up more funds for the Defense Department to spend on other things. This is a good idea as far as it goes, but it mostly serves to illustrate the limits of the Obama administration’s approach to defense spending.

The measures emphasize changing the structure of contracts to avoid massive cost overruns. In an interview with Bloomberg TV, Carter explained his view that "with the right incentives, profitability and productivity can go together." That means giving contractors financial rewards if they find ways to lower prices, in effect agreeing to split the savings with the contractors. The current system, by contrast, relies heavily on "cost plus" payment systems where contractors are simply guaranteed a payment over whatever the project turns out to cost. That helps account for the fact that government forecasts of costs are often inaccurate, and prevents contractors from simply cutting costs with shoddy work, but it means the industry has little incentive to improve its productivity.

Gates aims to change that, and Tuesday he promised to establish a new program that would change incentives for contractors over the longer term by giving special preference for bids from firms that have a good track record of on-time and on-budget performance. Along with tackling the obvious case of defense hardware manufacturers, the Pentagon leadership wants to go after service providers, an under-discussed area where they feel there are even more efficiencies to be found.

These are all good ideas, but as the Obama/Gates defense-reform bandwagon rolls forward, it's increasingly clear that the administration views these steps as an alternative to rethinking the scope of America's financial commitment to the military rather than a prelude to doing so.

"This effort is not about reducing the defense top line," Gates explained, "but about getting more bang for the buck by shifting resources from overhead to the military capabilities needed today and in the future."

In other words, by buying weapons and services more efficiently, the military will be able to do more war fighting. As Dana Hedgpeth reports for The Washington Post, the goal is a defense budget that grows 1 percent faster than inflation each year, a slowdown from the 7 percent annual increases of the past 10 years but hardly a cut.

What's more, there may be less to the cutbacks than initially meets the eye. One reason defense spending has increased so much over the past decade is the wars we've been fighting. The projection of slower growth going forward simply assumes no additional supplementals for new wars. That assumption is perhaps defensible as a budgetary proposition, but it's not necessarily realistic. And it's noteworthy that Gates and Obama don't anticipate defense spending actually falling as we withdraw from Afghanistan. Instead, the unwinding of that war is simply part of the overall deceleration in spending.

Not on the table, in other words, is actually spending less money.

And that's too bad. Efficiency, after all, comes in two forms. One is simply doing the exact same thing, except more efficiently. Buying the same number of submarines but tweaking the purchasing process to reduce costs, for instance. The other is asking more probing questions about whether the things you're doing are really worthwhile. The United States built up a globe-spanning military capacity in the 1940s to fight simultaneous wars against Germany and Japan. We kept such a capacity in place to face down the Soviet Union. Today we're doing … what, exactly?

Not nothing. But considering that Afghanistan's entire gross domestic product is only $14 billion per year, it's hard to believe that spending $5.7 billion each month on the war is a cost-effective way of doing business. If our allies' problem in Afghanistan is really the Taliban's awe-inspiring operating budget, it should be possible to level the playing field for a fraction of total current spending.

The out-of-whack costs of the war have implications not just for Afghanistan but for the entire American military posture around the world. Spending hundreds of billions a year to maintain a worldwide military presence whose main job is now posited as fighting ill-financed insurgent groups in sundry backwaters simply doesn't seem very sensible. The spirit of what Gates is doing is welcome. He's demanding that individual contracts and processes be subject to cost-benefit scrutiny, recognizing that a dollar blown on overruns is a dollar that can't be spent elsewhere. But the current Pentagon leadership wants to keep that entire analysis in-house. What's really needed is cost-benefit scrutiny across the whole scope of government operations.

More money for defense means higher taxes or less for other programs. Ignoring that point has been key to the politics of national security for the past 15 years, but it's nonetheless true. The real challenge for bringing efficiency to the defense budget will be to put it front and central.

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